Century Communities, Inc.

Greetings, everyone. Welcome to Century Community's second quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone telephones. To withdraw your questions, you may press star and two. You'll also note today's event is being recorded. At this time, I'd like to turn the floor over to Tyler Langton, Senior Vice President of Investor Relations for Century Communities. Sir, you may begin.

Good afternoon. Thank you for joining us today for Century Communities' earnings conference call for the second quarter to 2024. Before the call begins, I would like to remind everyone that certain statements made during this call may constitute forward-looking statements. These statements are based on management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in the forward-looking statements. Certain of these risks and uncertainties can be found under the heading Risk Factors in the Company's Latest 10-K, as supplemented by our latest 10-Q and other SEC filings. We undertake no duty to update our forward-looking statements. Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Dale Francescan, Chairman and Co-Chief Executive Officer, Rob Francescan, Co-Chief Executive Officer and President, and Scott Dixon, Chief Financial Officer. Following today's prepared remarks, we will open up the line for questions. With that, I'll turn the call over to Dale.

Thank you, Tyler, and good afternoon, everyone. First, I want to congratulate Scott on his well-deserved promotion to chief financial officer. Scott has been with the company for over 10 years, serving most recently as the interim chief financial officer for the last four months, and that transition has been seamless. Prior to that, Scott was the assistant chief financial officer responsible for overseeing Sentry's accounting and SEC reporting, financial planning and analysis, and directly managing the finance group. We are confident that Scott's strategic thinking and deep home-building knowledge will be a key component to help drive our future growth. Moving on to the quarter, we are very pleased with our results for the second quarter, 2024, in which we generated strong year-over-year and sequential improvement in nearly all key metrics. Our deliveries of 2,617 homes increased by 17% year over year and 11% sequentially. Similarly, home sales revenues of $1 billion increased by 24% year over year and 10% sequentially. Our adjusted home building gross margin of 24% increased by 300 basis points year over year and 120 basis points sequentially, and our adjusted earnings per diluted share of $2.65 increased by 66% year-over-year and 19% sequentially. Even with the volatility of mortgage rates during the quarter, we continue to see strong demand for affordable new homes. Our second quarter net new contracts of 2,780 increased by 20% year-over-year. We saw growth in all of our regions during the quarter, with the West and Texas posting the strongest gains at 59% and 30%, respectively, versus the prior year quarter. We also experienced an improvement in absorptions, with our second quarter 2024 monthly absorption rate averaging 3.5 versus 3.3 in the prior year quarter. While we typically see a sequential decline in orders as the second quarter progresses and we enter the summer months, our net orders actually increase sequentially in both May and June, as interest rates stabilized and started to decline from the highs we saw towards the end of April. So far in July, orders have stepped down from the June pace but are running ahead of prior year levels. Our focus on affordability positions us well for future growth and continued success as we can target the widest range of potential homebuyers. Our average sales price of $389,000 in the quarter remains among the lowest of the publicly traded homebuilders. Nearly 100% of our homes were built on a spec basis in the second quarter, and this approach allows us to control our costs, maintain an appropriate supply of quick move-in homes, provide our homebuyers with certainty of financing, and meet the healthy demand that we are seeing in our markets. Before turning the call over to Rob, I wanted to highlight a recent milestone for Century. A little more than a month ago, on June 18, we marked our 10-year anniversary as a public home builder. Over the past decade, we have meaningfully grown the company and transformed Century into a builder with a national footprint through both organic growth and acquisitions. Since our IPO, we've increased our presence from two states and five markets to 18 states and over 45 markets. We delivered 1,046 homes for $352 million of home sales revenues in 2014. and expect our full-year 2024 deliveries to see more than a tenfold increase over those levels. Similarly, over the last 10 years, we have grown our shareholders' equity to $2.5 billion from $363 million, and our book value per share to $78.68 from $16.93. Looking back at these achievements, we are filled with both an immense set of pride as well as gratitude to all the team members that made these accomplishments possible. Looking ahead, we are extremely excited about the strength and durability of the platform that has been built over the last 10 years. With a strong and seasoned team of home building professionals, over 78,000 owned and controlled lots, and a geographic platform that ranges from coast to coast over 18 states and 45 plus markets. We believe that Century is well positioned to drive future growth at higher returns by deepening our share in existing markets and generating further operating efficiencies by leveraging that increasing scale. I'll now turn the call over to Rob to discuss our operations, and land position in more detail. Thank you, Dale, and good afternoon, everyone. As we've discussed in the past, interest rate buy-downs continue to be the most important incentive for our customers, given their ability to significantly lower monthly payments, a key focus for our entry-level buyer. We were able to reduce our incentives on closed homes to approximately 600 basis points in the second quarter of 2024. from roughly 700 basis points in the first quarter 2024. This decrease was driven by a reduction in incentives on new orders that took place in the first quarter when mortgage rates were lower. However, with the increase in mortgage rates that took place in the second quarter, our incentives on new orders increased in the second quarter, averaging roughly 700 basis points. Looking forward, our level of incentives on future sales will continue to be impacted by interest rates. In the second quarter, more than 90% of our deliveries were priced below FHA limits, and over 60% of the mortgages closed by our captive mortgage company, Inspire Home Loans, were for FHA, USDA, or VA loans that typically carry interest rates and down payment requirements that are below those of conventional mortgages and help make homes more affordable. The FICO scores of our homebuyers remain healthy and consistent with levels from the first quarter 2024 and full year 2023. We also had continued success in controlling our costs in the second quarter with our direct construction costs on the homes we started remaining relatively flat on a sequential basis following the 2% quarter-over-quarter reduction in the first quarter of the year. We've been able to maintain these stable direct construction costs by both leveraging and expanding our trade and supply base across our national footprint. During the second quarter, we continued to see some incremental improvement in our cycle times, which remain in the four- to five-month pre-COVID levels. On the land front, We ended the second quarter with approximately 78,000 owned and controlled lots, a 35% year over year increase. The higher lot count on a year over year basis was driven mainly by an increase in our controlled lots, which accounted for 58% of our total lots in the second quarter. Additionally, at the end of the second quarter, Texas and the Southeast accounted for close to 50% of our total lot count, up from 42% in the year-ago period, and reflective of our strategy to grow our presence in these attractive markets that are benefitted from relative affordability, strong employment, and population growth. Combined with Century Complete, these more affordable markets comprise over 70% of our owned and controlled land supply. Additionally, the strength of our relationships with third-party land developers across the Southeast, Texas, and in all of Century Complete's markets further supports our traditional land-light strategy that is focused on acquiring finished lots. We've also been encouraged by the growth of our home starts and community count through the first half of this year, which will support future growth in our deliveries in the quarters ahead. In the second quarter, we started 3,867 homes, up from the 2,814 homes we started in the first quarter 2024, an increase of 37%. We ended the second quarter with a community count of 266, the highest level in our company's history, and ahead of our initial plans, as we were able to open new communities at a faster than expected pace in the quarter. Specifically, during the second quarter, we opened 50 new communities and closed 37. Our community count increased 14% versus year-ago levels and 5% sequentially, with the Southeast and Texas experiencing the highest growth rates over both periods. Century Complete accounted for 43% of our community count at the end of the second quarter, while the Southeastern Texas accounted for 30%. Given our success in opening new communities through the first half of the year, we now expect our year-end 2024 community count to be in the range of 275 to 285. I'll now turn the call over to Scott to discuss our financial results in more detail. Thank you, Rob. To start, I want to thank our Board of Directors for my promotion to Chief Financial Officer. As Dale mentioned, I joined Century over 10 years ago, have had the opportunity to be part of the company's strong growth over that time, and am excited to help drive Century's future success. Turning to the financials. During the second quarter of 2024, pre-tax income was $110.6 million, and that income was $83.7 million, or $2.61 per diluted share, a 63% year-over-year increase. Adjusted net income was $85.2 million, or $2.65 per share, a 66% year-over-year increase. EBITDA for the quarter was $129.1 million, and adjusted EBITDA was $130.6 million, respective increases of 61% and 63% over year-ago levels. Home sales revenues for the second quarter were $1 billion, up 24% versus the prior year quarter on both higher deliveries and average sales price, with our ASP increasing by 6% on a year-over-year basis. On a sequential basis, our average sales price of $388,800 in the second quarter decreased by less than 1% as Century Complete accounted for 37% of second quarter deliveries versus 33% in the first quarter of 2024, with a partial offset from lower levels of incentives. Our deliveries of 2,617 increased by 17% versus the prior year period. We saw growth across all our regions, with the West, Southeast, and Century Complete all posting growth rates of over 20%. We are pleased with the strong growth that we have seen in our deliveries in the first half of the year and expect to see sequential growth in both the third and fourth quarters of 2024. At quarter end, our backlog of sold homes was 1,753, valued at $755 million, with an average price of $430,500. While the average price of our second quarter backlog was above the average sales price of our second quarter deliveries, this difference was largely due to mix, including the percentage of century-complete homes. And we continue to expect our average sales price for the full year 2024 deliveries to be approximately $390,000. In the second quarter, adjusted home building gross margin percentage was 24% compared to 21% in the second quarter of 2023. Home building gross margins was 22.5% compared to 19.7 in the prior year quarter. Our adjusted gross margins in the second quarter also improved by approximately 120 basis points on a sequential basis with the improvement largely driven by lower incentives on closed homes. SG&A is a percent of home sales revenue was 12.4% in the second quarter compared to 12.8% in the prior year quarter. For 2024, we expect our SG&A as a percent of home sales revenues to decline on a year-over-year basis as we grow our deliveries and keep our fixed levels of G&A relatively constant. In the second quarter, our tax rate was 24.3% compared to 25.2% in the prior year quarter. we expect our full year cap rate for 2024 to be in the range of 24.5% to 25%. Our net home building debt to net capital ratio was 28.1% compared to first quarter 2024 levels of 24.9%. With our land and land development inventory remaining relatively flat quarter over quarter, this change was driven mainly by an increase in our homes under construction that will support a higher level of deliveries in the second half of 2024 as compared to the first half. During the quarter, we maintained our quarterly cash dividend of 26 cents per share and repurchased 464,980 shares of our common stock for $37 million at an average share price of $79.61. we grew our book value per share to a record $78.68, a 13% year-over-year increase, and ended the quarter with $2.5 billion in stockholders' equity. At June 30, to support our growth, we had $841 million in total liquidity. Additionally, we have no senior debt maturities until June of 2027, providing us ample flexibility with our leverage management. Subsequent to quarter end, our Board of Directors approved a new stock repurchase program allowing for the purchase of up to 4.5 million additional shares. Now turning to guidance. Given the strength that we have seen in our orders, deliveries and community count so far in 2024, we are increasing our guidance for our full year 2024 deliveries to be in the range of 10,700 to 11,300 homes and our home sales revenues to be in the range of $4.2 to $4.4 billion. In closing, demand for affordable new homes remains healthy, and we are encouraged by the strong performance through the first half of the year. We are successfully managing our costs and cycle times and will grow both our community count and deliveries on a year-over-year basis. With that, I'll open the line for questions. Operator?